“Investment and hiring intentions lowest since 2009”: Bank of Canada

Since Christmas Eve, the Toronto Stock Exchange index has dropped every single day, 10 trading days in a row, including so far today as I’m writing this, the longest losing streak since 2002. Now at 12,210, it’s down 21% from its 52-week high, set on April 17, and thus in bear market purgatory.

Beaten down energy producers, at about 20% of the index, have had a big impact. But the problems are broader. Among the standouts is the must-own, super-growth, TSX mega-cap Valeant, whose shares have plunged 65% from their 52-week high.

The Canadian dollar just dropped below US$0.70 for the first time since spring 2003, to US$0.6996. It now takes C$1.43 to buy a US dollar, up from about parity in 2011, 2012, and much of 2013. That year, Stephen Poloz became governor of the Bank of Canada. His solution was to demolish the currency. So he took it down 28% against the US dollar, with a big supporting hand from the collapsing prices of the commodities that Canada exports. Oil joined them in mid-2014.

The US benchmark WTI is trading just above $30 a barrel. Pundits at major investment banks have their eyes set on $20. Doom-and-gloomers see $10.

Canadian producers aren’t so lucky. Alberta’s heavy crude blend, Western Canada Select, plunged 30% so far this year, and on Monday hit US$16.51 a barrel, according to PSAC. “Lowest close on record,” according to the Globe and Mail.

Canadian producers are already experiencing what doom-and-gloomers are predicting for WTI. The swoon of the Canadian dollar is in part a reflection of this. Poloz is patting himself on the back. He sees benefits for big exporters outside the resource sector, such as auto manufacturing plants and component suppliers to the US auto industry that compete with Mexico.

This is a small consolation for Canadians who want to eat: At lot of food is imported; 81% of fruits and vegetables are imported. Canadians have to buy them with their plunging loonie.

In 2015, food prices rose 4.1%, according to the 2016 Food Price Report by the Food Institute at the University of Guelph. Meat prices rose 5%, fruits 9.1%, vegetables 10.1%. The average Canadian household spent C$325 more for food in 2015 than in 2014. Steeper increases are expected this year, with the average household likely to spend $345 more than last year. The report squarely blamed the loonie.

Well-to-do Canadians might brush off price increases. But they make a big difference for many middle-class Canadians who, just like their brethren in the US, are struggling on a monthly basis to make ends meet.

It’s impacting consumer confidence, which plummeted 12 points in December, to 91, the lowest level in two years, according to the Conference Board of Canada. Consumers are now increasingly worried about their finances and job prospects, and they’re becoming more reluctant to make major purchases.

It’s impacting businesses too: hiring and investment intentions by Canadian companies have plunged to the lowest level since 2009.

That’s according to the Bank of Canada’s quarterly Business Outlook Survey. Yet the interviews were conducted between mid-November and early December. Since then, oil prices have plunged and the loonie has dropped further.

Now there’s contagion. The Business Outlook Survey:

The negative effects of the oil price shock are also increasingly spreading beyond the energy-producing regions and sectors. For example, many businesses across the energy supply chain continue to struggle as they adjust to an environment of weak demand. As well, more firms exposed to slowing demand from their energy-related customers or from households in affected regions feel an indirect, yet often significant, impact on their sales perspectives.

And the weak loonie? Exporters outside the commodities sector are seeing some benefits as the relative cost of labor declines, and some of them are planning to raise their investment spending. “However, the majority of firms also face higher costs for imported inputs and investment goods….”

Given these higher costs of investment goods, investment intentions plunged below zero for the first time since 2009:

Compared with recent surveys, fewer projects are aimed at expanding production capacity, and many firms are limiting their spending to repairing and replacing existing equipment. The investment outlook for firms in the Prairies deteriorated further, but weakening investment intentions are now also evident in other regions.

Businesses most often cited concerns about the strength of domestic demand, uncertainty in the regulatory and tax environment, still-insufficient foreign demand, and low commodity prices as factors restraining their investment.

And the outlook for employment darkens, with employment intentions dropping to the lowest level since 2009:

Fewer firms plan to increase their staff over the next 12 months. As well, plans to cut staff are more widespread and are not confined to the commodity-producing sectors and regions.

Unperturbed, Finance Minister Bill Morneau displayed the optimism requisite of any government official, no matter what:

“I’d like to start by saying I’m optimistic,” he said in in Halifax on Monday, after this sort of lousy economic data had swamped the country which was alternating between anemic growth and a technical recession last year. “The good news is we have a plan,” he said.

The prime minister could start by firing Poloz and assume a take over the Bank of Canada. Sell 66.8 billion of USD treasuries…95.5 billion Ca.. Canada holds. Become self sufficient in all areas with the seed money. But, hey, were dealing with Washington puppets here. Not going to happen being more independent.

Domenic

Jan 12, 2016 at 6:40 pm

I’d settle for Mr Poloz to work for free until the debt of Canada is paid. Might as well take his advice. Fucken basterd!

Paulo

Jan 12, 2016 at 7:09 pm

Yeah, Trudeau is a Bay Street and Washington sock puppet, for sure. I always wonder what the base plan is for them, mainly because I am a suspicious Westerner and the history of Confederation is that all profits flow east to Bay Street, eventually.

Meanwhile, many are still working in manufacturing simply because of the low loonie, and tourism for 2016 looks to be very good. Just before I read this article a loud “BOOM” shook my windows. It was the sound of a roadbuilder blasting for ‘shot rock’ to be used for logging road ballast. (Makes great rock walls and river bank rocks, by the way). If it wasn’t for the low loonie nary a tree would be felled or a board cut…for both export and domestic use.

Grocery costs are getting scary, if you mindlessly cruise the isles and fill your cart on impulse. However, if you watch the specials and shop wisely there are very reasonable options to lower the costs. For example, the price of citrus has been out of this world all winter. This week oranges came on sale in my local town at $.67/lbs…which in Florida might be astronomical, but in Canada quite good. Banannas are the same price. Beef is crazy expensive, so people buy chicken or ham. We grow most of our food so except for fresh fruit we can always just eat our own stuff, but my grown kids are now discovering the benefits of wise shopping. A thin wallet instructs way better than a Dad giving advice. We bake our bread on crappy weather days and avoid the factory $4.00+ loaves. Yes, these are all nickles and dime savings, but they all add up to loonies and over time we have filled our bank accounts with them and lived like royalty along the way.

While geographically immense, in both influence and population Canada is a small country; smaller than California. As such, many of our fixed costs and infrastructure needs will be high compared to other places. But for the past 20 years Canadian politicians have been acting like they are one of the big boys. Harper was prone to fly around in an Airbus for both foreign and domestic visits. It now looks like Trudeau is acting the same way. We’ll know when it is getting tough when our leaders fly commercial, much like northern European leaders do. Better yet, if they want to seem special and important, use this made in Canada product:https://www.globalair.com/aircraft_for_sale/Business_Jet_Aircraft/Bombardier/Challenger__601-3R.html
Park the effing Airbus and set an example you jerks!!

I would appreciate seeing a reassesment of our values as this unfolds. We were once proud of being fiscally responsible, indeed, our capital gains and personal tax deduction structure is set up to reward home ownership with no outstanding mortgage. If you sell your primary residence you don’t pay capital gains in Canada, and mortgage interest or portion thereof, is not tax deductible. Yet, the home reno shows are filled with first-home buyers purchasing $750,000 fixer-uppers in Toronto and the GTA. This isn’t the Canada I remember. My Dad’s first house was maybe 2X his annual income. Mine was 2X. These tv homebuyer worker bees are most definitely not making the wages to support home buying at this level. People do not make the wages to support $30-40,000 dollar cars, but they but them on time…up to 7 years financing.

You don’t make money by selling your Treasuries. The money is just held in trust getting interest until maturity. The US treasuries are a reserve of growing wealth. So why “sell” them? They make money for the country.

Domenic

Jan 12, 2016 at 11:04 pm

“You don’t make money by selling your Treasuries. The money is just held in trust getting interest until maturity. The US treasuries are a reserve of growing wealth. So why “sell” them? They make money for the country.”

So the interest we make off those treasuries cancel off the debt interest payments we are paying? Would it not be better to pay off your credit cards with the money you have in your Canadian bonds lets say?

What your saying does not make sense to me.

Nicko

Jan 13, 2016 at 2:27 am

Whoa now, lets not get crazy. Canada is no rogue nation…but it did loose it’s way for a good decade pretending to be an Oil Emirate of the North under the previous regime. Now we’re moving the pendulum back to where it should be, a cheap loonie that will attract foreign investment, tourists, and even Hollywood. Canada is the second largest country in the world, overflowing with countless resources. We have 20% of the the fresh water on the entire planet! Sunny days just ahead. Well…just have to get that housing crash out of the way.

Mark

Jan 13, 2016 at 9:07 am

Yeah, the same could be said about Russia; largest country in the world with largest resources, one of the best and most powerful militaries in the world, some of smartest engineers in the world, excellent education and health system etc. etc. etc…
And what is your point???
You think this liberal suck up will do good for our nation?
Well one thing he’ll do good is to legalize marihuana, what else???
Fill tabloids just like his father, what else???
Time will tell but I deeply think we have chosen wrong PM for times that lie ahead.

Nicko

Jan 13, 2016 at 1:00 pm

The last liberal government left the country with a healthy budget surplus, I expect to see the same in a few years time. And if not, at least the social safety net will be strengthened.

John Doyle

Jan 13, 2016 at 5:19 pm

Budget surpluses are dire for an economy. It signifies the government is pulling money out of the economy in order to meet its bills. By strangling the economy in this way we end up with deflation or a recession.
Bill Clinton’s budget surplus led to George Bush’s 1993 recession as the nation adjusted to there being less money in circulation.
It may seem counterintuitive but the truth of the matter is that the government need to deficit spend into the economy! Then there will be more work, lower unemployment etc.

memento mori

Jan 12, 2016 at 6:30 pm

It is a mystery to me as to why is CAD so correlated with the price of oil when oil export is about 3% of Canadian economy.
A low CAD will boost even more real estate in Vancouver, especially as Poloz was asking Canadians to tolerate higher inflation in the coming years as he keeps interest rates low to boost the economy.
Vancouver RE might go in history books as the bubble that never was.

Bill Sodomsky

Jan 12, 2016 at 6:38 pm

The Prime Minister, the Finance Minister, the Governor of the Bank of Canada? These characters/bit players are supposed to do something?

All that matters is what Desmarais wants. The Desmarais Family (Power Corporation) have been calling the shots all along. Canadians need to do their homework and they can start with the current PM’s father who was a key operative of the “Family” and responsible for turning currency creation from the BofC to the private banks. Now that’s some kind of lineage!

I greatly appreciate the Canadian coverage Wolf.

SaveUs

Jan 13, 2016 at 1:18 pm

Right on Bill:

From 1939 to 1974 the Bank of Canada (BOC) issued monies for infrastructure projects, hospitals and schools at interest free loans. The BOC is owned by the people of Canada through the Bank of Canad Act and the Constitution. This system of finance worked for 35 years.

The Government of the day along with the economic elite decided that the Canadian government will borrow monies from the five major Canadian banks at interest.

Question: When are the Canadian people going to get their faces out of reality TV and stop listening to mainstream media and start reading blogs like this one?

Thank You Wolf

John Doyle

Jan 13, 2016 at 5:23 pm

That is what ALL central banks should be doing. But CB’s are staffed by bankers so they naturally would want all the extras borrowing incurs.
It was a great pity the pollies gave in.

renate maria

Jan 16, 2016 at 7:01 pm

Comer vs The Bank of Canada. Do a search for those who don’t know. It’s a shame that IMF/rothschilds owns our country, the whole system is a scam. Until all p.i.g.s (people in government slimes) are removed we don’t have a chance.

Tony in Ottawa

Jan 12, 2016 at 6:43 pm

Excellent summary. It’s really apalling to see a small coterie of unelected officials control the two most important prices in the economy (interest and exchange rate) and deciding that the best course of action is to in effect cut the average wage by about a third, for that is what the drop on the exchange rate amounts to. This in a “democracy”. What a joke.
Thanks for bringing it to out attention!

Nick

Jan 12, 2016 at 9:50 pm

An exchange rate drop isn’t the same as a wage cut — it can have that effect, but things like rent are still the largest expenses most households have, and CAD/USD doesn’t affect them.

The ‘unelected officials’ haven’t slashed the exchange rate — Canada has very little ability to control it, especially close to the zero bound. It could maintain dollar strength, by raising interest rates, but I think it’s obvious why that’s a bad idea. Someone has to control interest rates, and I think having a semi-independent central bank do it isn’t the worst way.

The question up above is a good one — given that oil represents around 6% of the Canadian economy, why such an outsized effect on the exchange rate? Is it because it is the primary export?

Raising rates will encourage private savings, instead of our current Central Bank/ Banking monopolies conjuring money and credit- which is a claim against future earnings of generations that didn’t get a say on the debt they will have to carry.

Tony in Ottawa

Jan 13, 2016 at 10:57 am

I agree that I used a broad brush and should have paid more attention to the details. Nonetheless, I would like to make a couple of additional points.
First, it is a wage cut, but not of 30% size. Non-tradeable goods (including housing services) will presumably stay put. But they won’t. Canada imports most of her capital goods. From hospitals to lumber producers and fishing fleets, all use foreign equipment. Think IT! These imports are price inelastic and they will adjust but little, while raising the costs of production. Meanwhile, Canada’s exports are also largely price inelastic and we are entering an environment of secularly low resource prices. Bombardier may benefit from the low loonie, but will Potash Corp?
As far as our top brass being unable to CONTROL the loonie, I fully agree. But that has not prevented the Governor from trying to INFLUENCE the CAD FX by literally bashing the loonie and hinting at negative interest rates in the future. This in a country that is already over-indebted according to OECD et al. I haven’t had a chance to check our Capital Account balance, but I suspect that we owe more than are owed and the lower loonie will hurt the borrowers as well. And if Bell and Magna are paying more on their debt, rest assured that the cost will be passed on to you and I. There are many ways of cutting wages to gain competitiveness. This is one of them.
Lastly, I fail to grasp how export led recovery can be practiced by so many countries simultaneously!!! Practically the entire developed and semi-developed world is racing to boost their exports by competitive depreciations of their currency. It is strongly reminiscent of 1929 and I wonder whether the next step will be President Trump and a re-enactment of the Smoot-Hawley Act. (Just joking, for now.)

d'Cynic

Jan 12, 2016 at 6:46 pm

I can only add that the TSE is at about the same level as ten year ago, but higher than the low point in 2009. The Bank of Canada actually did not have to do anything to make the dollar fall, just do what it always did – nothing. I do not know if BoC ever intervened in the currency markets, not even talking up the dollar. The price of oil is probably overshooting on the downside, so it is difficult to say where the bottom is.

Domenic

Jan 12, 2016 at 6:56 pm

I believe that Poloz reduced the interest rates 2 times last year to support the 1.8 trillion in Canadian mortgages.

However that is not all that reduced our dollar. Another reason why our dollar dropped so far is the relative strength of the USA dollar increasing over the year to year and a half.

That also helps banks by having to pay less on savings.

BTilles

Jan 12, 2016 at 8:46 pm

My sense has always been that as an economic entity, Canada looks more Texas than anything else–just with less gun worship. It’s an oil, agriculture, timber and mining driven economy. Edmonton is just the Houston of the North (and all that that implies) with Montreal and Toronto standing in for Dallas and Austin. Meaning no disrespect, but this suggests a highly pro-cyclical, export driven economy. And that the government will likely engage in weakening the currency to facilitate exports–like most others engaged in this beggar-thy-neighbor strategy.

Mark

Jan 12, 2016 at 8:48 pm

The last thing Canada needs now is strong CAD dollar, so please stop blaming Poloz or anybody else for current situation. It is the way it is engineered south of the border and in the city (state) of the London and exported all around the world.
If you look closely all currencies, again ALL CURRENCIES are going down and touching decade low against US dollar. Markets ALL AROUND WORLD are down and it is not just TSE.
This mess is created with purpose and you are about to witness biggest transfer of wealth in history. Smart (not just elite as many of you like to say) will benefit BIG TIME.
I rather be in Canada than in China or Europe in such turbulent times and as somebody commented above: buy wise don’t buy on impulse. Cheers.

Nick

Jan 12, 2016 at 9:57 pm

Yep, I totally agree. The idea that Canada has strong control over the loonie is a mirage — our economy is affected by a few factors that we can influence slightly: US interest rates, the recent demand for our marginal oil, commodities and services. Having the exchange rate go down makes fruits and vegetables more expensive; but people lived in Canada long before we learned to eat California asparagus. Of course there are some things that need to be purchased abroad, and their price goes up; but in general, the exchange rate gets you in the non-essential status items, like weeks at a Mexican resort, electronics, and the like.

The value of a country is its society, not its exchange rate; I think Canada is well positioned, though the incoherent ranting about Notley here in Alberta sometimes makes me think otherwise.

mark

Jan 12, 2016 at 10:54 pm

“people lived in Canada long before we learned to eat California asparagus” ha ha, love this.
Personally I think NDP will ruin Alberta’s economy to the point of no return and Justin equally the rest of country.

Nicko

Jan 13, 2016 at 2:31 am

If you study your Canadian history…you’ll discover Liberal led governments tend to create surpluses, job growth, and more equitable prosperity for all during their times of rule.

Nick

Jan 13, 2016 at 11:07 pm

Alberta’s economy has been ruined by every decision made over the pat 50 years — the NDP was in power for about 0.5 of those . . .

I take it you’re one of the people who’s decided that ‘and we’ll sell our oil if the Saudi king lets us’ is a good business model.

Dave

Jan 13, 2016 at 11:10 am

Not sure what you mean?

Have you walked through the Bay? Sears? Dollarama? Canadian Tire? You’ll find very, very few things made in Canada, yet our economy is just like the U.S. in that approximately 70% of the economic activity is driven by the consumer and those consumers are forced to buy imported merchandise.

Just last week Canadian Tire had its staff do a re-pricing of more than 20,000 items in their stores. It’s not just fruits and vegetables that are going up in price, it’s virtually everything that the average person buys. Poloz induced inflation is a tax on everyone, but the poor, the low earning workers and those on fixed incomes will get crushed.

Kam

Jan 13, 2016 at 10:00 am

“If you study your Canadian history…you’ll discover Liberal led governments tend to create surpluses, job growth, and more equitable prosperity for all during their times of rule.”

You must have been sleeping in your history class. Pierre Trudeau invented continuous deficits. And steady, continuous job growth is in the parasite class- government employees who are funded by compelling private sector employees and employers to pay up. So much for “more equitable”.

And only when Canada’s federal deficit was approaching the point where foreigners weren’t going to fund the party anymore, did the Liberals thru Paul Martin start to reign in the deficit.

And what happened when the federal deficit started to be reigned in? Quebec and Ontario started spending borrowed money like drunken sailors, ending in today’s provincial debt exceeding the Federal debt.

I am agnostic- all Canadian political parties, in practice, spend, spend, spend and have ZERO consideration for the people they tax.

Jack

Jan 13, 2016 at 11:55 am

Yeah, I remember the Paul Martin gov’t solving that problem in a hurry, by transferring those costs to the provinces.

And now here in Ontario, where we’re going to solve the whole world’s greenhouse gas problems (not), we’ve run up an accumulated “Net Debt of $298.315 billion” for the “2015-16 Outlook” (http://www.ofina.on.ca/borrowing_debt/debt.htm). Interest on that debt (for Ontario alone) is $11.270 billion per year!

And the Feds are now “floating” the idea of an HST tax hike. Yeah, that’ll make things better.

Paulo

Jan 13, 2016 at 11:27 am

Kam,

So true (your statement), but the problem is our people ask them to spend spend spend for everything we think we are entitled to. Furthermore, any Govt who speaks ‘tough love’ will be a one-term wonder. As for Notely, the right wing conspiracy group of corporate controlled media and their advertisors will ensure Notely takes the blame for events set into motion long before her election. What is now happening would have happened, regardless of who is in power.

Martin reigned in the Fed defecit by and large by raiding worker contributions to EU (Unemployment Insurance), putting the funds into general revenues and cutting back on benefits. Once again, the workingman paid the bill while corporations sidled up to the table for the desert course. The resulting anger launched the Reform Party, (basically western separtist) which eventually gave us Harper as he sucked up a relatively decent Conservative Party and twisted it into an Oil Patch special interest lobby.

And now here we are. Broke and wondering why the promisies won’t be kept. (No Disneyland this year, dear, and no pony).

Our fundamentals are strong: land, space, food production, water, resources, and rule of law. Add to that a reawakening of our social responsibilities and an acceptance that there is no money tree and we will do just find. The future is ours.

Plus, we grow and play the best hockey in the world. The rest piggy back and rent our players with the exception of a few.
(That should get a response).

Best of luck compadres, keep on grinning!!

Ptb

Jan 13, 2016 at 12:17 pm

Canada is a pretty nice place by world standards. I’d say it’s becoming a pretty good deal now as well. A countries wealth is created by productive capacity and Canada has plenty. Great natural resources and culture along with a rather small population and very good educational system.